A consortium of Indian banks led by the State Bank of India (SBI) on Tuesday moved a step closer in their attempt to recover debt from loans paid out to Vijay Mallya's now-defunct Kingfisher Airlines after the high court in London upheld an application to amend their bankruptcy petition, in favour of waiving their security over the embattled businessman's assets in India.
Chief Insolvencies and Companies Court (ICC) Judge Michael Briggs handed down his judgment in favour of the banks to declare there is no public policy that prevents a waiver of security rights, as argued by Mallya's lawyers.
At a virtual hearing, July 26 was set as the date for final arguments for and against granting a bankruptcy order against the 65-year-old Mallya after the banks accused him of trying to “kick matters into the long grass” and called on the “bankruptcy petition to be brought to its inevitable end”.
“I order that permission be given to amend the petition to read as follows: ‘The Petitioners (banks) having the right to enforce any security held are willing, in the event of a bankruptcy order being made, to give up any such security for the benefit of all the bankrupt's creditors',” Justice Briggs' judgment reads.
“There is nothing in the statutory provisions that prevent the Petitioners from giving up security,” he notes.
Mallya's barrister, Philip Marshall, had referenced witness statements of retired Indian judges in previous hearings to reiterate that there is “public interest under Indian law” by virtue of the banks being nationalised.
However, Justice Briggs found no impediment to the creditors relinquishing their security under Indian law because of the engagement of a “principle concerning public interest” and favoured the submissions made by retired Indian Supreme Court judge Gopala Gowda at a hearing in December 2020 on the matter.
“In my judgment the simple stance taken by Justice Gowda that Section 47 PIA 1920 is evidence of the ability of a secured creditor to relinquish the creditor's security is to be preferred,” the ruling notes.
The Indian banks, represented by the law firm TLT LLP and barrister Marcia Shekerdemian, were also granted costs in totality for the petition hearings, as the “overall successful” party in the case.
“Dr Mallya should have been extradited by now. He was refused permission to go to the Supreme Court in May last year,” Shekerdemian pointed out, in reference to one of Mallya's defence planks that the cases against him are “politically motivated”.
Mallya remains on bail in the UK while a “confidential” legal matter, believed to be related to an asylum application, is resolved in connection with the unrelated extradition proceedings.
Meanwhile, the SBI-led consortium of 13 Indian banks, which also includes Bank of Baroda, Corporation bank, Federal Bank Ltd, IDBI Bank, Indian Overseas Bank, Jammu & Kashmir Bank, Punjab & Sind Bank, Punjab National Bank, State Bank of Mysore, UCO Bank, United Bank of India and JM Financial Asset Reconstruction Co Pvt Ltd as well as an additional creditor, have been pursuing a bankruptcy order in the UK in relation to a judgment debt which stands at over pound 1 billion.
Mallya's legal team contends that the debt remains disputed and that the ongoing proceedings in India inhibit a bankruptcy order being made in the UK.
“The pandemic is having a much more severe impact in India than here, which has slowed things up. Dr Mallya would like things to be faster,” said his barrister Philip Marshall.
The case is now scheduled for a day-long hearing on July 26 for Justice Briggs to hear arguments from both sides on whether there is any reason why it should look “behind the judgment debt” to consider all such factors and therefore not grant a bankruptcy order.
Presenting a brief background to the petition, which dates back to 2018, the latest judgment describes Mallya as an “entrepreneur businessman” who had considerable financial success in India and other parts of the world as chief executive officer and shareholder of Kingfisher Airways (KFA) and controlling director and main shareholder in United Breweries Holdings Ltd (UBHL).
“The cost of aviation fuel rose in 2008, and the value of the rupee declined against the dollar.
"Dr Mallya decided to borrow substantial sums from some of the Petitioners,” the judgment reads.
“Dr Mallya provided personal guarantees for the sums borrowed from the Petitioners in 2010. UBHL also provided a guarantee,” it adds.
The debt in question comprises principal and interest, plus compound interest at a rate of 11.5 per cent per annum from 25 June 2013.
Mallya has made applications in India to contest the compound interest charge.
Photograph: ANI Photo